Five Steps to Prepare Clients for Retiree Health Care Costs (2024)



Client Acquisition

Client Engagement

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Client Acquisition

Client Engagement

Business Management

Health Care

How financial advisors can help ease client anxiety and prepare them for health care costs in retirement.

Paying for health care costs in retirement can be a scary subject for many people, and clients want help solving this financial puzzle. It turns out that only 21% of retirees with advisors actually receive advice on health care planning.1

Financial advisors can help reduce investor anxiety by sharing recent T. Rowe Price research2 that shows retirees’ health care costs are more predictable, manageable, and easier to plan for than scary headlines suggest. These five action-oriented steps can help calm clients’ nerves and better prepare them for the real costs of retiree health care costs.

Step 1: Focus on the facts

  • Reframe the discussion about funding health care costs by downplaying worst-case scenario projections and, instead, stressing how the health care costs that a typical retiree faces are far more affordable and predictable than they think.
  • Urge clients to resist thinking about retirement health care costs as a giant lump-sum figure. Instead, focus on annual costs, which are smaller and incurred over time, which makes paying for medical care more manageable.
  • Drive home the fact that when it comes to health care costs, insurance premiums are typically the biggest expense as well as the most predictable and easiest to plan for. For example, the estimated annual cost for the typical individual age 65 and older with Medicare Parts A (hospital insurance), B (medical insurance), and D (prescription drug insurance) coverage is $3,500, of which 73%, or $2,600 of that total, is for premiums.
Premiums account for the majority of annual health care costs

Estimated annual expenses for Medicare parts A, B, and D for individuals age 65 and older

Five Steps to Prepare Clients for Retiree Health Care Costs (1)

Source:T. Rowe Price estimates based on 2024 Medicare premiums and data from the Health and Retirement Study (2020). All costs are rounded to the nearest hundred.

  • Stress that health care “shocks” aren’t frequent occurrences. Certainly, health care cost shocks (which tend to increase with age) do occur, but they are not as prevalent or costly as you might think. In fact, 78% of retirees avoid expense shocks of $2,000 or more altogether. Research shows true expense shocks due to things like dental surgery aren’t the catastrophic budget-busters they’re made out to be. It turns out that only 11% of retirees experienced a health care cost shock ranging from $2,000 to $5,000, and just 2% got hit with unexpected medical bills of $25,000 or more over two years.3
  • Point out that overall spending in retirement on food, housing, and other things tends to decrease after age 75, making it easier to cover health care costs.
Overall spending decreases as people age

Average annual retirement expenditures by type of expense

Five Steps to Prepare Clients for Retiree Health Care Costs (2)

Source:U.S. Bureau of Labor Statistics, Table 1300. Consumer Expenditure Surveys, 2022.

Step 2: Support clients with the Medicare coverage selection and enrollment process

  • Since the cost of Medicare varies depending on what coverage your client selects, we suggest following this three-step approach to help them make their choice:
    • Alert: Set up a system in which you can ensure that clients are meeting all Medicare deadlines.
    • Educate: Help clients understand that there are different financial implications depending on the Medicare coverage they select.
    • Plan: Incorporate their Medicare choice into your planning.

Step 3: Use our cost projections in client presentations

  • A challenge when mapping out a plan to cover health care costs in retirement is not having solid numbers to back up your projections. But now you can use our cost projections as a guide during client planning presentations.
  • We’ve run cost projections for three different Medicare coverages, focusing on the typical costs at the 50th percentile and more extreme costs at the 90th percentile. For example, for retirees with Medicare Parts A, B, and D coverage, 50% of retirees will experience expenses of $3,500 or less per year and 10% can expect to have higher expenses of $8,300 or more per year.
Adopting an annual mindset enables you to work with more realistic costs

Total annual health care spending

Five Steps to Prepare Clients for Retiree Health Care Costs (3)

Source:T. Rowe Price estimates based on 2024 Medicare premiums (for Medicare Parts A, B, and D) and data from the Health and Retirement Study (2020). All costs are rounded to the nearest hundred.

Step 4: Choose what account to use

  • Let your clients know there are multiple savings accounts that minimize taxes and provide opportunity for growth that they can utilize to pay for health care expenses in retirement, including pretax accounts, Roth accounts, and health savings accounts (HSAs).
  • Make sure your client understands the benefits and tax treatment of each option. HSAs, for example, offer a triple-tax advantage, as contributions are tax deductible, growth is tax-deferred, and withdrawals for qualified health care expenses are tax-free. And let your client know that one benefit of an HSA is that they can invest the money deposited to potentially grow it, and they can have more money invested if they use other savings to pay for out-of-pocket medical expenses.

Step 5: Assess how health care costs will impact portfolio choices and asset allocation

  • Discuss with your client how projected health care costs will impact the way you construct their portfolio and make asset allocation decisions.
    • Discuss how you will budget for the ongoing expenses of Medicare premiums and expected out-of-pocket costs.
    • Determine how you might manage extreme expenses if they arise, including an emergency fund and insurance.
    • Review why including equities for potential growth can help mitigate the higher likelihood of late-in-life extreme expenses.

While headlines focus on more sensational examples of health care costs in retirement, these five steps can help you deliver a more balanced and fact-based message to your clients: Health care costs in retirement are manageable, relatively predictable, and can be planned for in advance.


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1T. Rowe Price Retirement Savings and Spending Study (2023).
2T. Rowe Price Insights: “Planning for Unexpected Health Care Costs in Retirement” July 2023
3 T. Rowe Price estimates from the Health and Retirement Study (2012–2018). Expenses are measured in 2022 dollars.


Five Steps to Prepare Clients for Retiree Health Care Costs (2024)


How do I prepare for medical expenses in retirement? ›

There are a few ways to pay for medical expenses in retirement other than out of your pocket. This includes government programs such as Medicare, contributions you make to a Health Savings Account (HSA) before you turn 65, savings accounts, such as Roth or traditional IRAs, and long-term care and disability insurance.

How much does it cost to plan for healthcare costs in retirement? ›

Planning for health care costs in retirement

It is estimated that the average couple will need $315,000 to cover medical expenses in retirement, excluding long-term care.

How would you control the cost of healthcare? ›

Eight ways to cut your health care costs
  1. Save Money on Medicines. ...
  2. Use Your Benefits. ...
  3. Plan Ahead for Urgent and Emergency Care. ...
  4. Ask About Outpatient Facilities. ...
  5. Choose In-Network Health Care Providers. ...
  6. Take Care of Your Health. ...
  7. Choose a Health Plan That is Right for You.
Aug 11, 2022

Why are healthcare costs an urgent problem? ›

There is strong evidence that we aren't getting the value that we should for our healthcare dollar. Quality is uneven and an estimated 30% of our spending is considered unnecessary.

What are the most common expenses in retirement? ›

Common budget considerations in retirement include housing, health care, entertainment, taxes, debt, travel and hobbies, home modifications, family support, and inflation. Some expenses change in retirement. While transportation and housing costs often drop, health care and entertainment may go up.

What is the single largest expense for a retiree in retirement? ›

Housing. Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees.

Are healthcare costs in retirement overwhelming? ›

For the median retiree, 25% of their Social Security benefits went towards medical costs. In total, the median retiree spent $4,311 on medical expenses, with most of that money going toward Medicare premiums. In 2022, the monthly premium for Medicare Part B, which is medical insurance, was $170.10.

What is the average monthly cost for retirees? ›

Average Retirement Spending

According to the Bureau of Labor Statistics (BLS), the average income of someone 65 and older in 2021 was $55,335, and the average expenses were $52,141, or $4,345 per month.

How much does Medicare cost per month for retirees? ›

Cost for most: $174.70/month

Most Medicare beneficiaries pay a standard Part B premium of $174.70 every month in 2024—including those who have chosen to enroll in a Medicare Advantage plan. Many Medicare Advantage plans have $0 premiums, which means you'll pay the Part B premium (and nothing else) each month.

What are three strategies that could be implemented to reduce health care costs in the United States? ›

Key Findings: States may pursue a variety of strategies to control spending growth, ranging from promoting competition, reducing prices through regulation, and designing incentives to reduce the utilization of low-value care to more holistic policies such as imposing spending targets and promoting payment reform.

How can we reduce healthcare costs without affecting patient care? ›

How to Reduce the Cost of Healthcare Without Compromising Patients' Health and Safety
  1. Support Healthcare Staff to Reduce Burnout and Turnover. ...
  2. Optimize Scheduling, Staffing, and Patient Flow. ...
  3. Bundle Contracts With One Partner.

What are 3 actions that consumers can take to lower their healthcare costs? ›

Enroll in an HSA or FSA. Take medical expense deductions. Consider insurance to pay for the high costs of long-term care. If you're near retirement, consider strategies to lower your Medicare premiums.

How does healthcare costs affect people? ›

The cost of health care can lead some to put off needed care. One in four adults say that in the past 12 months they have skipped or postponed getting health care they needed because of the cost. Notably six in ten uninsured adults (61%) say they went without needed care because of the cost.

What are the 2 biggest reasons healthcare costs continue to rise? ›

Cutler explored three driving forces behind high health care costs—administrative expenses, corporate greed and price gouging, and higher utilization of costly medical technology—and possible solutions to them.

What is the major cause of increased health care costs? ›

The average American spends a considerable amount of money on healthcare each year. Premium increases, higher deductibles and copays, and soaring prescription drug prices result in spikes in total healthcare costs.

What do early retirees do for health insurance? ›

If you retire before you're 65 and lose your job-based health plan when you do, you can use the Health Insurance Marketplace ® to buy a plan. The yearly period (November 1 – January 15) when people can enroll in a Marketplace health insurance plan.

Are medical expenses tax deductible for retirees? ›

However, out-of-pocket medical costs are a significant expense for older adults, especially for those who have retired. The good news is you can claim some of these expenses on your taxes. The key? They must be itemized and exceed 7.5 percent of your adjusted gross income.

Can you use retirement funds to pay medical bills? ›

For example, some 401(k) plans may allow a hardship distribution to pay for your, your spouse's, your dependents' or your primary plan beneficiary's: medical expenses, funeral expenses, or. tuition and related educational expenses.

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